Economist: Indonesia Has Great Potential to Capture Global Industrial Relocation

Executive Director of the Institute for Development of Economics and Finance (Indef) Esther Sri Astuti believes Indonesia has a great opportunity to attract investment from global industrial relocation amidst the trend of supply chain diversification. She stated that to compete with countries such as Vietnam, Thailand, and Malaysia, the government must strengthen various supporting investment factors that are the main considerations for global investors. According to her, the inflow of capital into Indonesia is highly dependent on the creation of a competitive and conducive business climate. “Several aspects that need to be strengthened include legal certainty, promising market prospects, availability of raw materials, a supportive industrial ecosystem, integration with the global supply chain, as well as readiness of energy infrastructure and basic utilities,” Esther said when contacted in Jakarta on Wednesday (24/6). Esther emphasised that legal certainty is one of the main factors determining Indonesia’s attractiveness in the eyes of global investors. In addition, regulatory harmonisation between the central and regional governments is also considered important to improve the ease of doing business. She noted that aligned regulations can provide certainty for investors in making long-term investment decisions and are a key prerequisite so that Indonesia does not fall behind other countries in the region that are also targeting industrial relocation. Furthermore, Esther assessed that the trend of transitioning towards a green economy opens up even greater opportunities for Indonesia. As one of the world’s producers of critical minerals, Indonesia has a strategic position in supporting the development of environmentally friendly technology. She said Indonesia has the potential to become a major supplier of raw materials for green technology, including for electric vehicle batteries and renewable energy infrastructure through commodities such as nickel and copper. To support this opportunity, the government has also rolled out various industrial downstreaming policies. The incentives provided include tax holidays, income tax reductions, exemption from import duties on machinery and raw materials, as well as the provision of a Specific Natural Gas Price (HGBT) facility. Esther considers downstreaming to be an important strategy to increase the added value of national natural resources while strengthening Indonesia’s position in the global supply chain. Through downstreaming, Indonesia can produce higher value-added products, encourage technology transfer, and increase industrial productivity. On the other hand, downstreaming also has the potential to expand the absorption of skilled labour, increase the involvement of micro, small, and medium enterprises (MSMEs) in the industrial supply chain, and support the transition to a sustainable green and blue economy. In addition to regulatory and infrastructure aspects, Esther also emphasised the importance of investment in education and human resource development. This step is necessary so that the needs of the industrial workforce can be met along with the increasing opportunities for industrial relocation investment. By strengthening the business climate, downstreaming, energy readiness, and workforce quality, Indonesia is considered to have great capital to become a major destination for global industrial relocation.